Ministers are prepared to let the French and German governments hold a stake in the UK’s largest defence company, it emerged yesterday.

At the same time, the Coalition could accept Britain not having an effective stake in the firm to be created by the merger of BAE Systems and Franco-German aviation firm EADS.

The two companies are expected to apply
for a two-week extension from the stock market today over their plans
for the £30billion merger.

The red arrows: BAE Systems Hawk trainer jet fighters line up. BAE and EADS are expected to apply for a two-week extension from the stock market over their plans for the £30billion merger

But with investors in revolt over the deal, the Government admitted it is prepared to give ground to make it happen. Defence Secretary Philip Hammond said Britain could tolerate both Paris and Berlin owning 9 per cent of the new company.

And senior Government sources said David Cameron was prepared to ‘hit the phones’ to thrash out a deal with French President Francois Hollande and German Chancellor Angela Merkel.

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That will enrage the 45 Tory MPs who last week demanded the PM block the deal unless France and Germany sell all their shares. The backlash grew yesterday when BAE’s largest shareholder, Invesco Perpetual, denounced the deal.

In a scathing attack, Invesco’s Neil Woodford said he had ‘significant reservations’ about the deal. His intervention adds to the opposition to a merger that threatens up to 50,000 UK jobs.

Still British: Royal Airforce Typhoon Eurofighter taxis out in front of Hawk T1 aircraft both produced by BAE Sytems. Investors are in revolt over the deal

Invesco, which owns 13.3 per cent of
BAE, warned the company would be ‘driven more by political
considerations than shareholder value creation’. While Britain would
retain a so-called ‘golden share’ in the new firm, this will have no
monetary value and will only theoretically allow a veto on future
takeovers.

The two companies have until tomorrow to alert the stock market to their detailed plans.

‘We will want to make sure that British jobs, British strategic interests, British defence interests are protected.’

An EADS refuelling aircraft lands at Farnborough Airshow. The Government has admitted it is prepared to tolerate Paris and Berlin owning a share in the new company

British made: A BAE Eurofighter Typoon produced in Warton, Lancashire

Defence Secretary Philip Hammond said wants to protect British interests

The French and Germans are seeking to
maintain control of up to 13.5 per cent of the new firm. But Mr Hammond
said 9 per cent was the maximum the UK would tolerate.

He said: ‘If the French government is
prepared to reduce its stake and dismantle arrangements that have given
it the ability to control the company, then with the addition of
safeguards, a national security agreement, safeguards about where the
company is headquartered, what the composition of the board will be, I
think it will be possible to put something together.

‘What we can’t have is this business going forward with the French or German state able to direct its activity. That would not be acceptable.’

A senior Cabinet minister also expressed doubts that a deal could be done with ‘meddling’ European politicians. He said: ‘For French and German politicians it is axiomatic that they should own shares in companies like this.

‘When you say we don’t think it is a role for governments to meddle in the running of these companies they look at you strangely. The problem is that they want a stake and the right to decide where things are built.

‘They don’t understand where we are coming from at all. They are where we were in the 1970s before the Thatcher government.’

The Government’s position puts it at odds with investors and MPs.

Last night Tory MP Ben Wallace said: ‘It is time we stopped listening to bankers and started listening to investors. Did we not learn anything from the financial crisis?’